Timing is Everything - Webvan & Pets.com

Episode 3 of the Tech Breakdowns Podcast podcast, hosted by Shobhit Jethani, titled "Timing is Everything - Webvan & Pets.com" was published on December 7, 2021 and runs 7 minutes.

December 7, 2021 ·7m · Tech Breakdowns Podcast

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Summary

Read the complete post along with charts and infographics at: https://techbreakdowns.substack.com/p/timing-is-everything I’ve been thinking a lot about timing. When you’re launching a new product, you have to know that the market is ready for it. The need to understand the market is especially important for innovative products since there are no data points to look at. Steve Jobs was good at figuring this out. During the go-go days in the late 90s, internet companies were forming left, right and centre and after the dot-com bust, most of them died. A lot of them were straight-up bad ideas and deserved to die. Among the ones that died, were a few outliers that had a good idea and a great vision but bad timing. Today, let’s look at two companies that were too early for their time and their modern counterparts. Webvan Webvan was a grocery delivery company that promised deliveries within 30 minutes. Further, the company offered premium-grade groceries at unbelievably low prices. The infrastructure that enabled this was way ahead of its time, the company invested in automated warehouses complete with miles of conveyor belts and robots as far as the eye could see. Following the mantra of the time to “Get big fast,” the company raised $396 million from blue-chip investors including Sequoia Capital, Benchmark Capital, Softbank, Goldman Sachs and Yahoo. Today, online grocery delivery is a big business around the world. The world’s largest online grocery delivery company, Instacart has carefully avoided the traps that Webvan fell victim to. Instacart, instead of building its own infrastructure, relies on the existing grocery shops and chooses to focus on delivery and customer experience. Instacart has a better pricing strategy than Webvan too. Instacart charges a small delivery fee but that in and of itself does not support the unit economics of delivering groceries. So, the company also marks up the prices of the items, so the actual prices are not visible to the customer. The company targets consumers who prioritise the ease of shopping online over the marked-up prices. -- Pets.com Do you own a pet? If so, you’ve probably ordered per supplies online. Julie Wainwright was approached by a VC to run Pets.com a new pet supplies company. The company’s first round was led by none other than Amazon! When the company launched, they had ads everywhere – TV, radio, print, outdoor. In November 1999, they even launched a magazine, the first edition of which was sent to one million pet owners in the US. At the heart of their marketing plan was a $1.2 million Super Bowl ad that aired in January 2000. The company was terrific at marketing and getting people to talk about it but not so much with developing a working business model. Eleven years later, Ryan Cohen realised that the same model of delivering pet supplies online was now feasible and he founded Chewy. Chewy compared to Pets.com is founded on better unit economics. Also, more people are shopping online than ever before. -- So, as I said at the top, being early is just as bad as being late. Both these companies along with many others from that era (see: Boo.com, Heat.net, Beenz etc) were too optimistic about people’s willingness to switch to online alternatives. Also, the market for these companies was restricted to the limited portion of the population that had access to the internet. A case can be made that these companies could have survived the dot-com bust had they been diligent with their resources. Good timing is clearly important but it is no replacement for bad management.

Episode Description

Read the complete post along with charts and infographics at: https://techbreakdowns.substack.com/p/timing-is-everything

I’ve been thinking a lot about timing. When you’re launching a new product, you have to know that the market is ready for it. The need to understand the market is especially important for innovative products since there are no data points to look at. Steve Jobs was good at figuring this out. During the go-go days in the late 90s, internet companies were forming left, right and centre and after the dot-com bust, most of them died. A lot of them were straight-up bad ideas and deserved to die. Among the ones that died, were a few outliers that had a good idea and a great vision but bad timing. Today, let’s look at two companies that were too early for their time and their modern counterparts.

Webvan

Webvan was a grocery delivery company that promised deliveries within 30 minutes. Further, the company offered premium-grade groceries at unbelievably low prices. The infrastructure that enabled this was way ahead of its time, the company invested in automated warehouses complete with miles of conveyor belts and robots as far as the eye could see. Following the mantra of the time to “Get big fast,” the company raised $396 million from blue-chip investors including Sequoia Capital, Benchmark Capital, Softbank, Goldman Sachs and Yahoo.

Today, online grocery delivery is a big business around the world. The world’s largest online grocery delivery company, Instacart has carefully avoided the traps that Webvan fell victim to. Instacart, instead of building its own infrastructure, relies on the existing grocery shops and chooses to focus on delivery and customer experience. Instacart has a better pricing strategy than Webvan too. Instacart charges a small delivery fee but that in and of itself does not support the unit economics of delivering groceries. So, the company also marks up the prices of the items, so the actual prices are not visible to the customer. The company targets consumers who prioritise the ease of shopping online over the marked-up prices.

Pets.com

Do you own a pet? If so, you’ve probably ordered per supplies online. Julie Wainwright was approached by a VC to run Pets.com a new pet supplies company. The company’s first round was led by none other than Amazon! When the company launched, they had ads everywhere – TV, radio, print, outdoor. In November 1999, they even launched a magazine, the first edition of which was sent to one million pet owners in the US. At the heart of their marketing plan was a $1.2 million Super Bowl ad that aired in January 2000. The company was terrific at marketing and getting people to talk about it but not so much with developing a working business model.

Eleven years later, Ryan Cohen realised that the same model of delivering pet supplies online was now feasible and he founded Chewy. Chewy compared to Pets.com is founded on better unit economics. Also, more people are shopping online than ever before.

So, as I said at the top, being early is just as bad as being late. Both these companies along with many others from that era (see: Boo.com, Heat.net, Beenz etc) were too optimistic about people’s willingness to switch to online alternatives. Also, the market for these companies was restricted to the limited portion of the population that had access to the internet. A case can be made that these companies could have survived the dot-com bust had they been diligent with their resources. Good timing is clearly important but it is no replacement for bad management.